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Give the Meaning of 'Debentures Issued as Collateral Security'. - Accountancy

Give the meaning of 'Debentures issued as Collateral Security'.

What is meant by issue of debentures as collateral security?

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Solution 1

Loans taken are majorly secured by mortgage of the assets known as a prime or principal security. Security given in addition to the prime or principal security is termed as Collateral Security. If the borrower is not able to pay the principal amount or interest on loan amount, then the lender has the right to recover the dues from the sale of primary security and in case if the primary security is not sufficient to recover the amount of debt, then the collateral security can be used to recover the due amount.

Solution 2

The issue of debentures as an additional security against the loan in addition to the principal security is known as issue of debentures as collateral security

Solution 3

An issue of debentures as a collateral security implies that debentures are issued for procuring or obtaining a loan. Here, debentures act as a security in case of the company fails to meet the debt obligations (Principal Amount + Interest Amount) on time.

Concept: Debentures as Collateral Security-concept
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